INFLATION has dropped back into the target range for the first time in 31 months, but it may not stay there for long.
Uncertainty over electricity tariff increases still clouds the inflation outlook.
Statistics SA figures showed yesterday consumer price inflation fell to 5,9% last month from September’s 6,1%, in line with market expectations. Slower food and fuel price hikes drove down inflation, as did the deflationary effects of a stronger rand.
The inflation drop prompted economists such as Asset Management’s Andre Roux to suggest more interest rate cuts were back on the agenda. But most are still forecasting rates will stay where they are, especially after the latest gross domestic product figures this week showed the economy was now out of recession.
Economists expect the inflation rate to jump above the target range, if only temporarily, in the next couple of months because the petrol price is expected to rise again, by about 29c a litre, next month. The oil price fell fast over the corresponding period a year ago.
economist Danelee van Dyk said yesterday that inflation could head back towards the 6,5% level next month and in January, but should fall again before rising later next year because of the World Cup and electricity price increases.
The Reserve Bank’s monetary policy committee said last week that inflation was likely to make a sustained return to within the target range only by the second quarter of next year, even though there might be “temporary declines” to within target range before then.
The Bank expects inflation to remain within range until the end of next year — as long as the National Energy Regulator of SA (Nersa) grants Eskom tariff hikes no higher than the 25% a year it has factored into its forecast.
Eskom is due to submit its final application for tariff increases for the next three years to Nersa on Monday . It has proposed increases of 45% a year, which it is estimated would add at least 50 basis points to the inflation rate after municipalities implement new electricity tariffs from July 1 next year.
But the African National Congress, the government, labour and business have expressed concern about the effect on the economy of such high increases and are working on proposals that would minimise tariff increases.
Indications are that uncertainty over power prices was the key factor that may have prevented the monetary policy committee from contemplating a further rate cut last week.
BJM economist Elna Moolman said yesterday that though last week’s meeting was a close call, “the longer you wait the smaller the chance of a further cut”.
’s economists cautioned too that “the government’s increased emphasis on weakening the rand to improve export competitiveness could also have negative implications for inflation, given the high import component of the basket”.
Stats SA’s figures showed yesterday that annual food price inflation fell to 5,3% last month from 5,6% in September. But food prices were still one of the largest drivers of inflation over the month as vegetable, fish, fruit and drinks prices jumped. Transport inflation fell during the month thanks to a 23c decline in the petrol price.
joffeh@bdfm.co.za